Trulia: Starter Home Inventory Sorely Constrained

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Housing inventory continues to be sorely constrained, with the starter home segment dropping 12.1 percent year-over-year this quarter, according to Trulia®’s recently released Inventory and Price Watch report. The shortage, as it stands, will require homebuyers to pay an average 1.9 percent more of their income to a buy a starter home.

“Tight inventory will still be a big obstacle to homeownership in many markets in 2017, but I’m cautiously optimistic that we’ll see the bottom of the current housing shortage as the year progresses,” says Trulia Chief Economist Ralph McLaughlin. “That said, buyers might not see price relief if President-Elect Trump’s to-be-seen policies boost demand without housing supply.”

Those in the market for a starter home will need to spend 38.5 percent of their monthly income, on average, Trulia estimates, representing lessening affordability.

Trade-up home inventory also dropped this quarter, down 12.9 percent year-over-year, according to the report. Premium home inventory declined less, at 5.6 percent. Those in the market for a premium or trade-up home will need to spend 13.9 percent and 25.5 percent of their incomes, in that order.

The worse starter home shortages are in coastal markets, including Portland, Ore. and Tacoma, Wash., the report shows. Other markets severely lacking supply include Los Angeles, Calif., Sacramento, Calif., San Diego, Calif., San Francisco, Calif., and Miami, Fla.

“As mortgage rates continue to trend upwards, homebuyers in the costly coastal housing markets in California and the Northeast may get some relief,” says McLaughlin. “Rising rates will likely cool the fierce competition in these markets where inventory has been tightening and affordability has worsened.”